Date 05/09/2007 The Right Side | By Erin-And-Isabel Now, if you are talking about mineral wealth Africa is up there in the realms of royalty. But as we keep telling you, investing in Africa is a risky business. The key is being able to climb into the mind of the government in question, to understand where it is coming from and, more importantly, where it's going.

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Easier said than done! Governments are made up of people and people don't always agree with one another. Take Tanzania's President, Jakaya Kikwete, and its Commissioner for Minerals, Dr Peter Kafumu, as an example.One minute the President is telling a Cape Town based mining conference that a hike in mining royalties is on the cards. The next the Commissioner is reassuring industry that the chances of this happening are remote. Who is an investor to believe?Mining policy under review... but still looks pretty reasonable

Over the last few months the Tanzanian government has indeed been reviewing all mining licences. This process is being run in tandem with the review of 1997's national mining policy which spawned the Mining Act of 1998. As a consequence they've been looking at royalties.Currently miners in Tanzania pay about 3% in royalties for most minerals but around 5% for diamonds and gemstones. Some argue this is much too low considering that in South Africa mining companies must fork out 12%. Dr Kafumu doesn't buy this argument and has been willing to publicly state that the reason for SA's high royalties is because it is a safer investment bet than Tanzania. Mining companies in Tanzania have much higher operational costs totalling some 60% of profits.

Still, analysts widely agree that Tanzania is still a "competitive destination" mainly due to its "good government policies". High praise indeed for Africa!
Undoubtedly, favourable legal and fiscal measures, flowing from the Mining Act have acted as a catalyst for direct foreign investment in the mining sector. Some significant measures include:

Tax incentives such as repatriation of profits accrued from mining investments;

Special VAT relief;

Zero import duties for equipment and machinery used during exploration;

A depreciation allowance of 100%; and

A 15% withholding tax for foreign contractors on technical services and management fees.

These investment friendly policies have worked! By 2005 there were 21 mining ventures registered in Tanzania - six in gold mining, four in gemstone mining and the balance, though not of concern to us at Miner Diaries, industrial. Better still the mineral sectors' contribution to GDP has risen from 1.5% in 1995 to 3.2% in 2004. Predictions are that this could reach 10% by 2025. Some incentives scrapped... but a new IT system limits the damage

Recently as the commodities boom has gathered momentum the Tanzanian public has started to ask more questions. Gold exports may have risen by 20% in 2003 from $414&#8211;$505 million but the Tanzanian people have not managed to get their hands on more than 5% of their very own precious yellow metal. Increasingly under pressure, the Tanzanian government had to do something. Some incentives like the 15% additional capital allowance provision have now been scrapped.
So then, are these rumblings the end then of the country's mining boom? We doubt it. Short of a Zimbabwe like fiasco, companies already operating in Tanzania are not going to back out if there are proven and probable minerals in the ground.
And from our precious point of view Tanzania's mineral resources are certainly not to be sneezed at! This is now the continent's third largest gold producer after South Africa and Ghana with proven gold reserves in excess of 36 million ounces. The most significant gold deposits have been found around Lake Victoria and are at various stages of development. But gold targets have also been identified in the south west.

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When you've got gold, gemstones come in rather handy too - yet another tick for Tanzania's precious box! Diamonds have been commercially produced at the Williamson Diamond Mine at Mwadui since 1925 but there are others too. Sapphires, rubies, emeralds, amethysts... the list is endless. So, no! This mining boom is set to continue. Thanks to Dr Kafumu - who seems like a pretty reasonable sort of guy - the royalty hike discussion seems to have been pushed under the carpet for the moment. Royalties, says Dr Kafumu, are "a very sensitive element that could make or break local and foreign investment." What the government is doing, however, is fine tuning its IT infrastructure which should identify companies whose compliance record for paying royalties leaves a lot to be desired. This could rake in billions of dollars currently lost to royalty evaders. This year alone, fees and royalties are expected to increase to $50 million from less than $25 million in 2004 thus avoiding the need for any drastic fiscal/tax hikes.Getting into the mind of government gets results

Meanwhile what the mining companies should be doing more of is getting as close to the Tanzanian government as possible, attempting to prove that they too have the country's interests at heart.
In spite of the mining contracts review, the Tanzanian government gave the green light to Barrick Gold Corporation's (TSX, NYSE: ABX) Environmental Impact Assessment report for its wholly-owned Buzwagi gold project. Buswagi is said to have 2.64 million ounces of gold reserves and an estimated life span of ten years. More on this project later in the month!
So for now we want to say this - all things considered Tanzania is a good bet for Africa as its mining policy still looks pretty fair. Put another way at least the government has been willing to engage with investors on the subject. It has been in talks with Barrick, the biggest gold mining company in the world, as well as Resolute Tanzania Limited and AngloGold Ashanti among others to work out the best way forward for keeping the public happy.
So, now that we've set the scene we'll soon be taking a closer look at the companies tapping Tanzania's mineral wealth.
In the mean time, keep digging!
Erin and Isabel